Context:
The Central Board of Direct Taxes (CBDT) has issued a notification stating that companies can no longer claim tax deductions on expenditures incurred to settle cases related to violations of specific financial and competition laws. The change, effective April 23, prohibits companies from deducting fines, penalties, or settlement amounts associated with four key laws while calculating taxable income.
Laws Affected
- The affected laws are:
- Securities and Exchange Board of India (SEBI) Act, 1992
- Securities Contracts (Regulation) Act, 1956
- Depositories Act, 1996
- Competition Act, 2002
Impact on Businesses
- Under the notification, any expenditure related to settling proceedings or paying penalties under these laws will not be considered a business expense.
- This decision is made under Section 37 of the Income Tax Act, 1961, which governs the treatment of business-related expenses.
Government’s Stance
- The government has reinforced the message that violating laws will result in dual financial consequences: fines and higher taxes.
- Abhishek Rastogi, founder of Rastogi Chambers, commented that this policy signals the government’s firm stance on noncompliance, stressing that companies will face more significant financial consequences beyond fines.
